Method for improving pharmaceutical selection ratios in pharmacy implementation of prescription medication dispensing plans

ABSTRACT

A method is disclosed by which pharmacies and physicians are encouraged to select appropriate and effective medications but dissuaded from selecting higher priced medications where more economical versions are available as alternatives, but where physicians and patients can also select such higher priced medications if they so choose and are prepared to pay that higher price. Under this system a single representative price (capitation rate) is calculated by a prescription payment plan manager for a group of related medications, usually including both branded and generic, and that price is paid to a pharmacy for all prescriptions of that group of medications fulfilled under the plan. The representative prices for different groups, including their minimum levels, are periodically reviewed and updated as appropriate.

CROSS REFERENCE TO RELATED APPLICATION

This application is a continuation of application Ser. No. 11/397,928filed on Apr. 4, 2006 of the same title.

FIELD OF THE INVENTION

The present invention relates generally to the field of fillingprescriptions for consumers. More particularly it relates toprescription payment benefits made available by health plans, employergroups, governmental entities and other organizations to their employeesand/or members.

BACKGROUND OF THE INVENTION

Many employees and members (“consumers”) of health maintenanceorganizations, employer groups and government entities have theirpurchases of personal prescription medications subsidized by payments topharmacies through prescription benefit plans (“plans”) offered by thosehealth maintenance organizations, employer groups and governmententities. Under such plans, a consumer receives a prescription for amedication from his or her physician and submits it to a pharmacy to befilled. The pharmacy checks to see that the consumer is a member of aplan with which the pharmacy has a contract and that the medication anddosage prescribed are within the approved scope of the plan contract.Upon verification of these requirements, the pharmacy dispenses themedication to the consumer. The consumer pays the pharmacy a “copay”amount, less than the normal cost of the medication. The pharmacyreceives the balance of the payment for the medication and itsdispensing services from the prescription benefit plan, which is managedby a “prescription benefit manager” (“PBM”) with whom the healthmaintenance organization, employer group or government entity (“payer”)has contracted to manage the plan. The PBM invoices the payer (i.e., thePBM's customer) for the consumer's transaction, along with a charge forits contracted fee, and from the funds paid by the payer the PBM paysthe pharmacy's balance due.

Conventionally brand name prescriptions are priced by starting with anationally published “average wholesale price” (AWP) and discountingthis figure. A dispensing fee is then added to this number. On the otherhand, in the prior art systems generic drug claims usually employ anadditional variant for pricing. This is a concept known as “maximumallowable cost” (MAC) pricing. MAC is the concept of paying a set pricefor a product on a per unit basis. Since multiple manufacturers mayproduce the same generic drug and dosage, the MAC price is appliedregardless of the manufacturer or that particular manufacturer's AWP. Itis common that prescriptions are paid at the lower of a) AWP minus adiscount plus a dispensing fee or b) MAC plus a dispensing fee.

Because the cost of medications is so high and is such a large componentof medical care costs generally, there is an on-going effort on the partof PBMs and payers to seek ways in which to control medication costs.Pharmaceutical medications are commonly available to consumers(patients) either in “brand name” (proprietary) or generic form. In somecases, especially for new or patented medications, only the brand namemedication is available, usually only from a single source—the developerof the medication. For many others, however, there is no proprietarylimitation on manufacture of the medication, and multiple sources of themedication—in generic or alternative brand name form—are available.Further, it is common that for a given class of pharmaceuticals, thereare several different medications with substantially equivalent medicaland physiological effects. Some of these medications may be proprietarybrand name products while others may be generic and yet others may havebeen available in both generic and brand name forms. Retail pricescharged by pharmacies can vary widely, especially where a particularmedication is available in both brand name and generic form.Reimbursement rates paid to pharmacies vary depending on the productbased on traditional reimbursement methodologies.

Physicians and other health care providers who write prescriptionstherefore often have choices among the different medications they canprescribed for a patient. A physician can, for instance, prescribe abrand name medication or a generic form of that medication, or he/shecan choose between two or more different but equivalent medicationcompositions. If the physician prescribes a brand name medication,he/she can also designate whether a dispensing pharmacy must dispenseonly that specific medication or can substitute an equivalent genericmedication. There are of course significant differences in retail costamong the different medication forms, with generic forms normally beingsubstantially lower in cost than brand name medications. However, eitherwithin each group (brand name or generic) there can be substantial costdifferences, depending usually on the wholesale prices set by thevarious manufacturers. Thus for a single therapeutic category aphysician, pharmacy and patient may be faced with numerous forms of thesame or equivalent medications, all with different pricing.

PBMs are effectively in the middle of the prescription/pricing system,acting to obtain the most economical pharmaceutical prices for theirclients, the payers, while at the same time seeking to insure that thepharmacies with which they contract for prescription fulfillment remainstable, economically viable and efficient businesses. Therefore it isvaluable to all concerned—pharmacies, PBMs, payers and patients—forthere to be a convenient, fair and effective system for managingmedication costs under which patients can receive the medications theyneed at costs which are optimum for all. Such a system should provide amechanism by which pharmacies and physicians are encouraged to selectappropriate and effective medications but dissuaded from selectinghigher priced medications where more economical versions are availableas alternatives, but where physicians and patients can also select suchhigher priced medications if they so choose and are prepared to pay thathigher price. It is a object of this invention to provide such a system.

SUMMARY OF THE INVENTION

The method of this invention is applicable to all types ofprescriptions, including but not limited to those considered “shortterm”, “acute care”, “long-term” and “maintenance”. It will beunderstood also that the method of the present invention is equallyapplicable to management of all prescription fulfillment and dispensingof medications in any dosages or quantities. Similarly, the particulartotal days' supply of a dispensing prescription, whether the exemplaryand commonly used 30- and 90-day quantities, or 14-, 60-, 100-day or anyother quantities, is to be understood to be within the scope of theinvention. Those skilled in the art will be readily able to calculateand apply the appropriate discount and other payments for any desireddispensed quantity or medication.

The present invention provides an innovative system under which groupsof medically similar medications are defined—e.g., lipotropics,antidepressants, oral contraceptives, non-steroidal anti-inflammatorydrugs (NSAIDs), etc.—and an overall representative retail price of allof the medications in each group is calculated. Such calculations arenormally made by determining the usual AWP/MAC prices, includingdiscounts and dispensing fees, for each medication in the group—bothbrand name and generic products—and the percentage of the group saleseach of the medications is responsible for over a specific time period.These “dispensed-weighted” prices for the various medications are thentotaled and the total is designated as the representative price for thegroup as a whole. Typically where there are several brand name drugs andseveral generic drugs in the group with their different prices, therepresentative price will be an amount intermediate between the higherpriced brand name product prices and the lower generic product prices.The “usual” reimbursement is based on what the payer is billed by thePBM.

Under this system the PBM agrees to pay a pharmacy the representativeprice for any and all of the group medications dispensed by thatpharmacy. By using the representative price the PBM can also quote toits clients (the payers) subscription and management fees foradministering the payers' pharmaceutical prescription plans whichinclude effective cost control measures under this system. The pharmacyis then encouraged to use the lower priced medications where appropriateand possible, since the pharmacy earns (or loses) money in the amountwhich is the difference between the price it pays for the medicationfrom the manufacturer or distributor and the representative price“fixed” fee that it receives from the PBM. Pharmacies are also therebyencouraged to request from physicians either directly or through theirpatients that the physicians where appropriate prescribe the lowerpriced medications or at least give the pharmacies the option ofsubstituting such lower priced medications, to insure that thepharmacies will remain profitable. To insure that the representativeprice paid by the PBMs remains fair to both pharmacies and payers, therepresentative price calculations are done periodically, which may be ona weekly, biweekly, monthly or other basis, depending on the differencemedication groups and how their dispensing rates and prices mayfluctuate, and the representative prices for the various groups adjustedaccordingly.

So far the description of the system has defined aspects which have beenknown and in commercial use for several years, although limited inactual practice. More recently, however, the need for improvement toenhance the system from both the pharmacies' and the payer's points ofview has been recognized. Thus the present invention involves the basicsystem enhanced by differentiation of different types of medicationswithin a group, multiple layers of representative price review,capitation and adjustment, and further incentive to pharmacies to seekthe most economical medications consistent with good medical practiceand physicians' instructions.

BRIEF DESCRIPTION OF THE DRAWING

FIG. 1, the single FIGURE of the drawings, is a graph over time (>2years) illustrating the increase in average percentage genericmedication utilization involving the fixed fee payment systemincorporated in this invention at a representative group of pharmacies.The boxes indicate the range of data fluctuations as measured attwo-week intervals while the dashed line within each box indicates theoverall trend of the data during the overall time period indicated bythe box.

DETAILED DESCRIPTION OF THE INVENTION

As noted above, the present invention provides an innovative systemunder which groups of medically similar medications are defined—e.g.,lipotropics, antidepressants, oral contraceptives, non-steroidalanti-inflammatory drugs (NSAIDs), etc.—and an overall representativeretail price of all of the medications in each group is calculated. Suchcalculations are normally made by determining the usual AWP/MAC prices,including discounts and dispensing fees, for each medication in thegroup—both brand name and generic products—and the percentage of thegroup sales each of the medications is responsible for over a specifictime period. These “dispensed-weighted” prices for the variousmedications are then totaled and the total is designated as therepresentative price for the group as a whole. Typically where there areseveral brand name drugs and several generic drugs in the group withtheir different prices, the representative price will be an amountintermediate between the higher priced brand name product prices and thelower generic product prices.

The calculation is illustrated in the Table that follows, which assumesan simulated medication group which includes brand name drugs A-E andgeneric drugs F-J, and up to 30-day prescription quantities for all. Foreach the AWP price, the AWP/MAC discount, the fill (dispensing) fee andthe total retail cost are shown in columns 2-5. As noted, “AWP” means“average wholesale price” of a medication or medication group, whetherbrand name or generic, usually available from a single or limited numberof producers, and is commonly a price determined on a national basisindependently of the PBM, pharmacy or plan contracts. “MAC”, also asnoted, means “maximum allowable cost” of a generic medication, whichusually is calculated from consideration of marketplace prices for themedication from different producers. Such pricing data are commerciallyand publicly available from various sources. Column 6 shows thepercentage of the group dispensings which comprised the drug inquestion, followed by the percentage price contribution of the drug. Atthe bottom of column 7 of the table the individual price contributionsare totaled yielding the representative price for the group as a whole.This is the “fixed fee” amount that the PBM then pays to the pharmacyfor each dispensing of any medication in the group, regardless ofwhether it is a brand name drug or a generic drug.

TABLE 1 Calculation of Representative Price (Fixed Fee) AWP/ Percent MACFill Total Percent Contri- Medication AWP Discount Fee Cost Dispensedbution Drug E Brand $92.00 15% $2.50 $80.70  6%  $4.84 Drug B Brand$84.00 15% $2.50 $73.90  5%  $3.70 Drug D Brand $76.00 15% $2.50 $67.10 3%  $2.01 Drug A Brand $75.00 15% $2.50 $66.25 20% $13.25 Drug C Brand$63.00 15% $2.50 $56.05 16%  $8.97 Drug F $50.00 58% $2.50 $23.50 11% $2.59 Generic Drug G $48.00 58% $2.50 $22.66  4%  $0.91 Generic Drug J$43.00 58% $2.50 $20.56  5%  $1.03 Generic Drug H $29.00 58% $2.50$14.68 18%  $2.64 Generic Drug I $21.00 58% $2.50 $11.32 12%  $1.36Generic Representative $41.29 Price/Payment

It will be seen from the Table that the representative price fallsgenerally midway between the brand name drug prices and the generic drugprices. In this simulated example the two classes of drugs are shown aseach contributing 50% to the overall sales of this group of medications.If the ratio of class contributions to the group sales were in a ratioother than 50%-50%, the calculated representative price would bereflective of that ratio. Further, one or more drug prices significantlyout of line with others in its class will also affect the representativeprice.

Under this system the PBM agrees to pay a pharmacy the representativeprice for any and all of the group medications dispensed by thatpharmacy. It will be seen that a pharmacy selling this mix of drugs inthis class will have a net deficit in the range of $14.79-$39.41 onsales of the brand name drugs. On the other hand, the pharmacy will havea net profit in the range of $17.79-$29.97 on sales of the genericdrugs. Thus the pharmacy is encouraged to use the lower pricedmedications where appropriate and acceptable to the physician, since thepharmacy earns (or loses) money in the amount which is the differencebetween the price it pays for the medication from the manufacturer ordistributor and the representative price “fixed” fee that it receivesfrom the PBM. Pharmacies are also thereby encouraged to request fromphysicians either directly or through their patients that the physicianswhere appropriate prescribe the lower priced medications or at leastgive the pharmacies the option of substituting such lower pricedmedications, to insure that the pharmacies will remain profitable. Toinsure that the representative price paid by the PBMs remains fair toboth pharmacies and payers, the representative price calculations aredone periodically, which may be on a weekly, biweekly, monthly or otherbasis, depending on the different medication groups and how theirdispensing rates and prices may fluctuate, and the representative pricesfor the various groups adjusted accordingly. By using the representativeprice the PBM can also quote to its clients (the payers) subscriptionand management fees for administering the payers' pharmaceuticalprescription plans which include effective cost control measures underthis system.

There have been, however, aspects of this system which have been foundnot to adequately reflect the interests of the PBMs, the payers or thepharmacies. It has been found that there are certain groups ofmedications whose prices are not equitably addressed by the basicsystem. A principal group to which this applies is those new medicationsreleased within the previous year, for which stable price levels areoften not established for several months, and in particular which maycommand elevated prices for a period after introduction because of theirnovelty. It has been determined that this group of medications is notinitially suitable for price support capitation, so they are excludedfrom the basic plan for the first twelve months from their date ofintroduction. Another class of medication for which capitation, or atleast capitation at a standard calculated rate for related medications,is not applicable is those medications for which the AWP to the pharmacyexceeds $200. These medications have a price structure which is usuallysufficiently far outside the normal range of related medications that toinclude them in the regular representative price calculation for theirnormal medication group would unduly skew the calculation and raise therepresentative price paid as a fixed fee by the PBMs to a levelunrepresentative of the prices of the other members of the group, andthus represent a burden on the payers with respect to their plans'inclusion of the regular medications in that group. In both the newmedication and the “$200+” medication, therefore, the presentimprovement invention excludes these from fixed fee/representative pricecalculations and instead substitutes a fee-for-service payment based onthe individual medication's actual price. Thus the payer is stillcharged on a conventional billing basis as anticipated by thesubscription contract with the PBM, which will include thefee-for-service payments for these medications, but which will not bedistorted by them with respect to the other, regular medications andmedication groups to which the regular fixed fee calculations pertain.On the other hand, the pharmacy is paid by the PBM on thefee-for-service basis rather than on the fixed fee basis for thesespecial circumstance medications, which provides appropriatecompensation to the pharmacy without providing a windfall with respectto the pharmacy's normal payments on the fixed fee, capitation basis.

It has also been found that capitation minimums must be considered andadjusted periodically. The capitation rate, i.e., the fixed fee, mustnot be allowed to be so low that the pharmacy has insufficient incentiveto dispense lower cost medications as compared to higher cost ones. Ifthe fee paid by the PBM for a medication group is too low, manypharmacies will not conclude that there is a significant differencebetween their costs and the fixed fee to create an adequate profitmargin for them, and they will make no effort to substitute genericdrugs for brand name ones, and they will simply pass on the costdifferential on all of the medications to the patient. This of coursewill displease the patients and, through them, the payers. Thus thecurrent invention enhances the basic system by including means toperiodically assess capitation procedures and the calculatedrepresentative prices to determine if the fixed fees being paid to thepharmacies for the various medication groups are adequate to assure thatthe pharmacies see sufficient profit margin in the fixed-fee-paidgeneric drugs to encourage use of those in preference to the higherpriced branded drugs. As an example, over time the AWPs for medicationsgenerally increase so that the AWPs for more individual medicationsreach or exceed $200, resulting in a decrease in the number of claimswhich are eligible for fixed fee payment. By increasing therepresentative price, say from $200 to $300, the AWPs of many of thesemedications again fall under the fixed fee calculation.

It will be recognized that a key element in the present invention is themeans available to the PBMs to collect all of the data on pharmacy andmedication pricing, analyze it in accordance with the pricing anddispensing characteristics of the various defined medication groups,thereafter determine the appropriate representative prices for each ofthose groups, and to repeat these steps periodically and frequently, asdescribed above, to insure that all parties—the pharmacies, payers andpatients—are provided with optimum levels of payment and plan support bythe PBMs. Clearly the most practical manner of doing this is toincorporate the system into computer software which has the capabilityof storing all of the data, analyzing the data through the appropriatemathematical and statistical functions, and providing in a timely mannerthe pricing and capitation information that the PBM personnel need inorder to manage the payers' plans in a satisfactory manner and maintainthe participation interest of the pharmacies. The details of suchsoftware will be readily determined by those skilled in that art, andappropriate accounting, data analysis and statistical software programsare either commercially available or can be readily produced or adaptedfrom commercial software. What is important to the present invention isnot the particular programming code that a user might choose for aspecific step, but rather that all of the different code units areassembled in the unique manner dictated by present invention and evidentto those skilled in the art from the above description of the functionsto be accomplished and the calculations to be performed. An example ofsuch software is a program developed as part of the present inventionand referred to as “Pharmacy Dashboard”. This program enables the PBM toprovide remote online access to participating pharmacies so that eachpharmacy or pharmacy chain can assess and compare pharmacy performanceover time under the present invention according to drug category,prescription dispensing date and/or store (for multi-store pharmacygroups or companies). A participating pharmacy or pharmacy group candetermine either or both prescription profit sums and averages overalland/or separately for branded and generic drugs.

Although several embodiments of the invention have been described aboveby way of example only, it will be understood by those skilled in thefield that numerous variations and modifications may be made to thedisclosed embodiments without departing from the scope or spirit of theinvention, as it is defined by the appended claims.

1. A method for improving pharmacy medication selection ratios in aprescription fulfillment plan, the method being embodied on a tangiblecomputer readable storage media, wherein the method comprises: adefining a group of related medications dispensed by a pharmacy undersaid plan, determining the sales price and group sales percentage ofeach medication within said group, determining therefrom agroup-weighted sales price for each said medication, and performing acalculation of a representative price by summing said group-weightedsales prices for all medications within said group; b excluding fromsaid group and representative price calculation those relatedmedications which have price structures dissimilar to those medicationswithin said group; c establishing a minimum amount at or above whichsaid representative price will be maintained; d for each prescriptionfulfillment of a medication within said group, paying to said pharmacyan amount equal to said representative price; e periodically repeatingstep a; and f periodically assessing and when appropriate adjusting saidminimum amount of step c; whereby each said pharmacy receives anincentive to preferentially fulfill said prescriptions with lower costsmedications with said group when consistent with medical efficacy andprescriber instruction.
 2. A method as in claim 1 wherein saidrepresentative price comprises a capitation rate on reimbursement of apharmacy under said plan.
 3. A method as in claim 1 wherein said groupcomprises at least one each of a branded medication and a genericmedication.
 4. A method as in claim 1 wherein said medications excludedfrom said group comprise medications which have recently been introducedto the market and medications for which the ingredient cost issubstantially greater than a normal range of ingredient costs formedications within the group.
 5. A method as in claim 1 wherein periodicrepetition of step d occurs on a period determined by overall salesactivity of the medications of said group in the marketplace.
 6. Amethod as in claim 5 wherein said period length is on the order of twoweeks.
 7. A method as in claim 1 wherein said periodic assessment ofstep f occurs on a period length of not more than one year.
 8. A methodas in claim 1 further comprising defining a plurality of groups, each ofwhich is comprised of medications of a single medical class, andconducting steps b through f independently for each group, whereby saidpharmacy receives different payment of different representative pricesfor different groups within said plurality, each said representativeprice being calculated such that said pharmacy has appropriate incentivefor each said group to fulfill prescriptions for medications within saidgroup with a lower cost one of said medications.
 9. A method as in claim1 wherein data for steps a and b are contained in a database comprisingmedication identifications and current and historical prices and salesamounts for each medication within said database and means forimplementation of said steps a. and b. comprises computer software. 10.A method as in claim 9 wherein at least said steps e and f areimplemented by computer software utilizing data from said database. 11.A method as in claim 4 wherein said exclusion for a newly introducedmedication expires one year following the date of its introduction tothe market, and thereafter said medication is included within saidgroup.
 12. A method as in claim 4 further comprising subsequentreassessment of said exclusion of a medication which has a pricestructure dissimilar to those medications within said group, at suchtime as there may be a change in such price structure, and thereuponterminating said exclusion if such change has occurred and has beensufficient to make the then-current price structure of said medicationcomparable to price structures of medications already within said group.13. A method for improving pharmacy medication selection ratios in aprescription fulfillment plan, the method being embodied on a tangiblecomputer readable storage media, wherein the method comprises: adefining a group of related branded and generic medications dispensed bya pharmacy under said plan, determining the sales price and group salespercentage of each medication within said group, determining therefrom agroup-weighted sales price for each said medication, and performing acalculation of a representative price by summing said group-weightedsales prices for all medications within said group; b excluding fromsaid group and representative price calculation any recently releasedmedication for which a stable price level has not been established; cexcluding from said group and representative price calculation anymedication having an average wholesale price that exceeds apre-determined maximum allowable cost; d establishing a minimumrepresentative price for said group; e for each prescription fulfillmentof a medication within said group, paying to said pharmacy an amountequal to said representative price; and f periodically repeating steps ato e; whereby each said pharmacy receives an incentive to preferentiallyfulfill said prescriptions with lower costs medications with said groupwhen consistent with medical efficacy and prescriber instruction. 14.The method of claim 13, wherein the minimum representative price in stepe is determined such that the pharmacy is provided with an incentive todispense lower cost medications as opposed to higher cost medications.15. The method of claim 13, wherein recently released medications instep c are medications released in the last year.
 16. The method ofclaim 13, wherein the pre-determined maximum allowable cost in step d is$200.
 17. The method of claim 13, further comprising defining aplurality of groups, each of which is comprised of medications of asingle medical class, and conducting steps b through e independently foreach group, whereby said pharmacy receives different payment ofdifferent representative prices for different groups within saidplurality, each said representative price being calculated such thatsaid pharmacy has appropriate incentive for each said group to fulfillprescriptions for medications within said group with a lower cost one ofsaid medications.
 18. The method of claim 13, further comprising: gperiodically repeating step d to maintain an appropriate minimumrepresentative price for said group.